Are Frequent Flyer Miles Taxable?

Five Cent Nickel receives compensation from some companies issuing financial products, like credit cards and bank accounts, that appear on this site. Unless a post is clearly marked "Sponsored", however, products mentioned in editorial articles and reviews are based on the author's subjective assessment of their value to readers, not compensation. Compensation may impact how and where products appear on non-editorial pages (e.g., comparison or "marketplace" pages). That said, our standard is that we will never accept advertising from a product which we wouldn't use ourselves.

In case you haven’t heard, a number of Citi customers have received 1099-Misc forms for bonus miles that they received during 2011. But are frequent flyer miles actually taxable?

According to a report in the Wall Street Journal, the answer is… Maybe.

It all depends on how/why you received them. Were they awarded as a rebate? Or a promotion? Or maybe as a prize? To add to the confusion, the IRS hasn’t issued a definitive ruling on the matter.

Yes, they’ve said that you don’t have to pay taxes on miles attributable to business or personal travel. But other types of miles? That’s less clear.

Here’s the scoop according experts at the American Institute of CPAs as well as Randy Peterson, published of Inside Flyer magazine…

Miles awarded for flying. As noted above, these are non-taxable.

Miles awarded for credit card use. These likewise seem to be non-taxable.

Note: Citi agrees with this, saying that rewards and miles provided in connection with a purchase are non-taxable.

Miles awarded for business travel. Again, non-taxable.

Miles awarded as part of a promotion. Think signup bonuses… These miles are potentially taxable though, unlike Citi, AmEx doesn’t report them, likening them to a rebate since there is usually a spending requirement and/or an annual fee.

Miles awarded as prizes. When miles are given out as prizes, sweepstakes-style, they are generally taxable.

So there you have it… Your miles may or may not be taxable. It all depends.

Another interesting (and annoying) point to arise out of this is that Citi has apparently decided to value these miles a 2.5 cents each, meaning that a 30k mile bonus equates to $750 in 1099-Misc earnings.

Seriously? 2.5 cents each? How often are you able to redeem your miles for 2.5 cents each? A much more reasonable estimate would be 1-2 cents per mile, and that’s often only possible if you tweak your travel plans to qualify for a reward ticket.

Comment Policy: We love comments! However, the comments below are not provided or commissioned by this site or its advertisers. Comments have not been reviewed, approved or otherwise endorsed by this site or its advertisers. It is not this site or its advertisers' responsibility to ensure all comments and/or questions are answered.

5 Responses to “Are Frequent Flyer Miles Taxable?”

Oh, wow, interesting. I hadn’t thought of that – I don’t get flyer miles but I get a rebate from my credit card and I wonder if that’s taxable income. I should remember that to ask my tax person about!

I do not see how these miles can be taxed at 2.5 cents per mile. That would be absolutely ridiculous considering the fact that the redemption rates are nowhere near that. I received 150k miles last year from Citi for signing up for two AAdvantage cards, so you can see why I am so outraged! 🙂

If Amex starts doing that we will not use credit cards at all any more. Presently we only use them for the rewards. My husband will just use his work card for work travel and we will just go cash only. We already pay a yearly fee to get the miles… to pay tax on them would just ice the cake. If my in-laws didn’t live abroad we wouldn’t even do this much.

Disclaimer:
Because rates and offers from advertisers shown on this website change frequently, please visit referenced sites for current information. This website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.

Advertiser Disclosure: Many of the savings offers
appearing on this site are from advertisers from which this website receives compensation for being listed here.
This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.

Editorial Disclosure: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author's alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.

UGC Disclosure: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.